If Thursday's crunchtime meeting of eurozone leaders in Brussels does not reassure the markets, some part of the eurozone may fall within days. In Washington, the countdown continues to what Americans are calling D-day, 2 August, when the US government says it would no longer be able to pay its bills within the existing debt ceiling of $14.3 trillion. The two largest economies in the world teeter on the brink of eurogeddon and dollargeddon.
It looks as if America will step back from the brink, though without fixing the underlying problem. And Europe? I wouldn't count on it.
The west's twin competitors in decadence are different in many ways. The US's soaring debt is a danger to the country's credibility and power in the world; it does not threaten the union itself. The eurozone crisis puts in question the very future of Europe's more recent and looser union.
The EU is a commonwealth of 27 sovereign states, with a union budget distributing just 1% of their combined GDP. The public debts of those states vary from going on 150% in Greece to less than 7% in virtuous Estonia. The US is a full federal union of 50 states, but with a national government redistributing just under a quarter of the country's GDP – whereas the national government of a European country would typically redistribute around a half.
US Republicans and Democrats are more polarised by ideology than any mainstream European parties are. Where Americans are divided by ideology, Europeans are divided by nationality. The Republicans of the eurozone crisis are the Germans. German chancellor Angela Merkel is to Brussels what House Republican leader Eric Cantor is to Washington: the powerful but shortsighted blocker.
The US debt burden rose thanks to tax cuts introduced under President George W Bush and expenditure on foreign wars, as well as growing health and welfare spending – and then the bailouts and Obama's large-scale Keynesian deficit spending following the financial crisis. Europeans typically did not do major tax cuts, let alone wars. With a few exceptions, such as Britain and France, their defence spending has shrunk from small to tiny.
But Europeans went on their own kinds of binge over the last decade. Notably this included a splurge of irresponsible spending and borrowing by the peripheral member states of the eurozone, such as Greece, Portugal and Spain, facilitated by a splurge of irresponsible lending by French and German banks. Both sides were lulled into a sense of false security by the apparent one-for-all and all-for-one interest rates and promise of the eurozone.
So there are obvious differences between the two sides of the Atlantic. But dig a little deeper and you find profound similarities. For in truth, this is a structural crisis of liberal democratic capitalism – or, if you prefer to emphasise the politics, liberal capitalist democracy – as it has developed in the heartlands of the west over the last decades.
On both sides of the Atlantic we have lived beyond our means. Look at the graphs and you can see corporate, household and public debt piling up over the last 40 years. Now, with the nationalisation of private debt following the financial crisis, and the slump in growth and government revenues, the figure for public debt is creeping up, like the temperature gauge on an overheating car, to the danger level of 90%, 100%, 110% of GDP.
Our financial system, which privatised profit and socialised risk, must bear a significant part of the blame. (Last year, according to the Office for National Statistics, Britain's bankers and insurance brokers still found themselves worth £14bn in bonuses.) So must relentless consumerism, with advertisers discovering ever more refined ways to manufacture "needs". So must postwar baby boomers' expectations of ever more healthcare, welfare, social security and pensions: a fair aspiration, you might say, were it not bought at the expense of our children.
Again, the differences between the US and Europe in this respect are greatly overstated. A breakdown on the US website factcheck.org shows that nearly half of US federal government expenditure is already going on what Europeans call the welfare state. (To be precise: social security, Medicare, Medicaid, the children's health insurance program and low-income assistance totalled 46.9% of spending in the 2010 fiscal year.) Admittedly, that's half of a quarter of GDP, rather than, say, two thirds of a half, as in a generous European welfare state; but it's still the lion's share – and going up.
Then there's the politics. What we see today on both sides of the Atlantic is a perversion of democracy. It consists in giving vocal sections of the people what they want in the short term rather than proposing to most of the people what they need in the longer term – and taking the risk of short-term unpopularity along the way, as all good leaders have done. As the New York Times columnist David Brooks points out, US Republicans last week refused a deal that could actually have cut US government spending by at least $3 trillion over a decade. Back in Europe, contrast Helmut Kohl and Merkel. The former led German public opinion, the latter has followed it to the cliff's edge.
This is a politics that is hyper-responsive to money, special interests, media campaigns, pressure groups, focus groups and the latest opinion poll or sub-national election. It's no accident that Washington and Brussels compete for the title of lobbyist's paradise. It turns out that what both these huge, sprawling polities, the EU and the US, do better than anything else is the aggregation of particular interests – and the appeasement of as many of them as can be appeased at any one time.
There's the echo of an old argument here. Federalist paper No 10, written by James Madison, argued that a large republic would be better equipped than small states to defend the public weal against special interests and factions. It would make it more difficult for unworthy candidates to "practise with success the vicious arts, by which elections are too often carried". Wise, farsighted representatives would "refine and enlarge the public views". Montesquieu had therefore been wrong to suggest democracy might work best in smaller units, and be harder to sustain in large ones.
The Chinese communist party goes one step further. With $3 trillion dollars in the safe – that's Safe, the English acronym for China's State Administration of Foreign Exchange – it argues that the People's Republic has found a better, more effective way to run a large, diverse territory.
The task that now confronts the twin giants of the liberal democratic west is to prove Madison right, Spengler and the Chinese Communist party wrong. So far, we're making quite a hash of it.
by Timothy Garton Ash
(headline is ours)